Beyond shine: Choosing between silver and gold for stable returns

In examining the performance of silver versus gold, it’s evident that both metals offer distinct advantages for investors. Over the past decade, silver has demonstrated comparable returns to gold, with both metals providing substantial returns for investors. However, in the shorter term, silver’s performance has lagged behind that of gold.

Analyzing volatility metrics further highlights the differences between silver and gold. Standard deviation, a key measure of volatility, reveals that silver exhibits higher volatility compared to gold over 5- and 10-year periods. This increased volatility underscores the inherent risk associated with investing in silver, albeit with the potential for higher returns.

Looking at absolute returns as of December 31, 2023, silver has delivered respectable performance, albeit slightly trailing behind gold. This underperformance can be attributed to silver’s volatility and its susceptibility to market fluctuations. Despite this, silver remains an attractive investment option, particularly given its industrial applications and growing demand.

Unlike gold, which is primarily valued for its status as a store of wealth, silver boasts extensive industrial usage. From electronics manufacturing to solar panel production, silver plays a crucial role in various industries, contributing to its overall demand. The rise of electric vehicles and renewable energy further drives the demand for silver, as it is essential in EV batteries and semiconductor chips.

Moreover, silver’s antimicrobial properties make it a valuable commodity in healthcare and consumer goods, further diversifying its usage. As both an industrial metal and a precious metal, silver occupies a unique position in the market, offering investors exposure to diverse sectors and economic cycles.

Examining global silver availability reveals interesting insights into supply and demand dynamics. With an estimated 61 billion ounces available globally, silver significantly outpaces gold in terms of availability. However, rising demand, particularly from major consumers like the USA, India, and China, suggests a potential supply-demand imbalance, which could drive prices higher.

Understanding the sources of silver supply further elucidates its market dynamics. From mining operations to recycling initiatives, various channels contribute to the overall supply of silver. In India, for instance, mines like the Rajpura Dariba Mine in Rajasthan contribute significantly to domestic silver production.

Investors seeking exposure to silver have multiple avenues to consider, including physical purchase, futures and options trading, and investment in silver ETFs. Silver ETFs, in particular, offer a convenient and cost-effective means of accessing the silver market, with options available from reputable fund houses like ICICI Prudential and Nippon India.

While silver may exhibit higher volatility compared to gold, its industrial applications, growing demand, and unique investment characteristics make it a compelling option for investors.